Starbucks Goes Downmarket in China Drive 星巴克在华开拓低端市场

By newsdoug on December 9, 2011

Starbucks drives into smaller Chinese cities Starbucks (Nasdaq: SBUX), whose name in China conjures up images of a new generation of young urban professionals happily sipping overpriced lattes, is taking a measured risk with that very image, announcing a major new expansion into 5 very unyuppie-like cities in the nation’s heartland. (company announcement) The move is part of the company’s aggressive expansion plan, which will see it triple its China store count to 1,500 by 2015 from the current total of about 500. To do that, it will have to move beyond big cities like Beijing and Shanghai, where local yuppies now happily splash out $3 or $4 or even more for cups of latte and mochas that might cost consumers in some of China’s less affluent cities an entire days’ wages. The latest list of new China markets for Starbucks includes the very working-class cities of Xiangtan, Langfang and Zhengzhou, all in the country’s heartland, as well as the freezing city of Harbin, provincial capital of Heilongjiang province bordering Russia. For sure the people of Harbin could use a cup of something hot at this time of year, when temperatures have already dipped below the freezing mark and are unlikely to emerge until next April or May. But whether they will want to pay $4 for the privilege of having a hot drink when they could pay 25 cents for a cup of piping hot tea at the local eatery is another story. Starbucks has always sold itself as more of a “lifestyle” eating and dining experience than a pure food and beverage play, so obviously it’s hoping to bring that image to these newer, more working class cities as it enters them. The image strategy could ultimately work, as every city, no matter how big or small, will always have its class of upwardly mobile young people aspiring to show off their rising status. But in order to execute that strategy, Starbucks may have to either shave 20-30 percent off the prices it charges in bigger urban markets, or find some other offerings in that price range. Otherwise, it could quickly find itself with a large number of pretty but largely empty new stores spread across the Chinese heartland.

Bottom line: Starbucks’ plan to tap consumers in the Chinese heartland could work if it changes its prices and/or product mix to better suit lower incomes in these cities.

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